Sumitomo Mitsui Trust’s Property Arm Targets Assets to Double

Pedestrians walk past the Sumitomo Mitsui Trust Holdings Inc. headquarters in Tokyo. Sumitomo Mitsui is seeking to boost its asset management business as Japan’s real estate market started to show signs of a turnaround. Photographer:Tomohiro Ohsumi/Bloomberg

Sumitomo Mitsui Trust Real Estate Investment Management Co.,
the real estate arm of Japan’s fourth-biggest bank, plans to
increase its assets from 225.8 billion yen as of March 31, said
Mitsuo Kimura, president and chief executive officer of the
Tokyo-based unit. The company is also considering setting up a
private real estate investment trust depending on investors’
demand and will reach a decision by March 2013, he said.

The trust bank’s property arm and an investment unit of Axa
SA, Europe’s second-largest insurer, said last month they each
started a fund with 5 billion yen to buy office buildings in
central Tokyo. The two funds, which may jointly invest in
buildings, plan to raise as much as 50 billion yen that will
enable them to acquire 100 billion yen of assets, Kimura said.

“I expect the market to recover next year,” Kimura said
in an interview in Tokyo. “Japan’s stability has become
attractive for the European and the U.S. investors who are
seeking a place to invest.”

Office buildings in Tokyo provided a 3.4 percent total
return, including rental income and capital value, in 2011,
after a 0.5 percent gain a year earlier, according to RREEF, a
property investment arm of Deutsche Bank AG. Before that, the
market had three straight years of declines, the data showed.

By comparison, total returns for properties in the U.K.
fell by half last year after rising as much as 15 percent in
2010, while returns from U.S. real estate climbed for two
straight years after posting two annual losses, based on data
compiled by RREEF.

Sumitomo Mitsui’s property fund will buy office buildings
in central Tokyo that are in the 3 billion yen to 10 billion yen
price range, according to the company. The fund targets an
internal rate of return of more than 10 percent, it said.

Tokyo’s office vacancy rate in July fell from a record
high to 9.3 percent, according to Miki Shoji Co., a closely held
office brokerage company.